Thread: A note of caution for those with deposits in US Banks

Originally Posted by Spin

^ Im a bit confused about all this talk of inflation. If this money that is being printed is largley being given to companies who are hoarding it to avaoid bankruptcy then how will that money ever trickle down into the economy to cause inflation.

Is there something I'm missing?, most talking heads seem to be of the opinion that inflation is off the table for at least the rest of 2009.

There are two main causes of inflation, the most common being demand driven. Clearly there is little of that about right now...

The other is fiscally-driven, namely when a Government simply does not have enough money, cannot borrow (more) and, rather than cut expenditure (or default altogether), its prints money to pay those creditors that will accept its own currency. Thankfully Governments are seldom mad enough to try this, as it creates self-perpetuating inflation, i.e. more paper money chasing the same number of physical assets. Zimbabwe and the Weimar Republic are two good examples of this policy in full-swing.

At the same time, or even in fear that it will be attempted, confidence will be lost in the currency concerned, which will cause it to be devalued against other currencies. This effect on inflation was not so significant in the 1930's, as economies did not have total reliance on imported goods, as some do today, but it did add to the inflationary spiral. Recently, with great dependance of significant economies being utterly dependant on imports, such as the UK and USA, the risk of 'imported inflation' is large too. It is my view that, without printing so much as an additional 5-pound note, the UK's recent 30% drop in Sterling will see many goods increase in price well into double figures. Add the two effects together and you end up with Mugabenomics.

Originally Posted by bkkandrew

The other is fiscally-driven, namely when a Government simply does not have enough money, cannot borrow (more) and, rather than cut expenditure (or default altogether), its prints money to pay those creditors that will accept its own currency.

again, showing how confused you are. The government doesn't print or create money, the Fed or Central bank does. The Treasury, a government branch, only issue bank notes and that's it. They can't create money out of thin air as you are implying here. Again you are misleading, making up stories and facts, and using deceiving techniques just to "show" you are right. Absolute non-sense. You are stuck in the economics of the 1940s.

^^On the same note, I found this table which shows that the Weimar Republic did suffer a brief year or so of DEFLATION prior to the now infamous hyper-inflation, so it shows that this can happen and (in response to MM's point) why some 'experts' get confused and entrench themselves into positions of inflation or deflation, rather than one followed by the other...

Anyway the chart:



Clearly, where I took this from:

Daily Pundit » WIN - Whip Inflation Now? Nope.

the commentator believes that the USA is at the end of the deflation phase, hence his (not my) arrows...

Originally Posted by bkkandrew

There are two main causes of inflation, the most common being demand driven. Clearly there is little of that about right now...

there are more than 2 actually, more like 4 main ones. The main source of inflation being Money Supply manipulation by the Fed. Demand pulled inflation only happens when the economy is doing great and at full potential. Hardly the case now. Cost push inflation, or supply shock are the most serious ones and difficult to "fix", this is the one we are having now. The "fix" is to create a long recession and kill AD. Very brutal.

Originally Posted by Butterfly

Originally Posted by bkkandrew

The other is fiscally-driven, namely when a Government simply does not have enough money, cannot borrow (more) and, rather than cut expenditure (or default altogether), its prints money to pay those creditors that will accept its own currency.

again, showing how confused you are. The government doesn't print or create money, the Fed or Central bank does. The Treasury, a government branch, only issue bank notes and that's it. They can't create money out of thin air as you are implying here. Again you are misleading, making up stories and facts, and using deceiving techniques just to "show" you are right. Absolute non-sense. You are stuck in the economics of the 1940s.

You would cause an arguement with someone about which raindrop would run down a window pain faster. If all the people in the world that belived the FED didn't do what the Government told them got together they would all fit into Larry's Dive with room for a Thai Visa party. There wouldn't be a normal person in the building, mind you.

since the Fed is completely independent and make decisions based on a committee of 12 independent governors, I don't see how the government, above all the current one which is absolutely clueless about anything, GW Bush wouldn't be able to balance his personal account if he had to manage it himself, could intervene or dictate the Fed policy.

The bailout was an exception because the Treasury was getting desperate, but the Fed made the calls, and the Treasury followed, so at the end the Fed actually gave instructions to the government how to act.

Again, you have no clue

Originally Posted by Butterfly

The "fix" is to create a long recession and kill AD.

What is "AD?"

American dollar?

Originally Posted by Butterfly

The bailout was an exception

Oh, I see

And then there is the next bailout 'exception', then Obama's 'exception'. Did you argue with your grandmother as a child?

Originally Posted by Milkman

Originally Posted by Butterfly

The "fix" is to create a long recession and kill AD.

What is "AD?"

American dollar?

Alistair Darling?

Here's a snippet on hyperinflation under the Weimar Republic.

The money-supply increase (printing of money) is noted at the 2:00 mark.

Most posters probably already know this, but any comments or opinions are welcome, as the topic has turned to inflation, deflation --> inflation --> hyperinflation, possibilities:

^Sound card playing up on this PC, so will have to listen later. Anyway, a pic to be going on with.

Originally Posted by bkkandrew

And then there is the next bailout 'exception', then Obama's 'exception'. Did you argue with your grandmother as a child?

speculation at this stage, only in your mind everything you say is real

Originally Posted by Butterfly

Originally Posted by bkkandrew

And then there is the next bailout 'exception', then Obama's 'exception'. Did you argue with your grandmother as a child?

speculation at this stage, only in your mind everything you say is real

Butterfly's way of dealing with reality:

So, does anyone else think the boom was out of control? This chart shows the amount of leveraged buyouts (usually funded through debt):



Its a lot to pay back.

.

Investors shun German bond auction

By David Oakley

Published: January 7 2009 13:30 | Last updated: January 7 2009 13:30

Investors shunned one of the most liquid and safest assets in the world on Wednesday as a German bond auction failed in a warning for governments seeking to raise record amounts of debt to stimulate their slowing economies.

It is the first eurozone bond auction of the year and an ominous sign of potential trouble ahead for governments around the world, with an estimated $3,000bn expected to be issued in sovereign debt this year – three times more than in 2008.

The auction of 10-year bonds failed to attract enough bids to reach the €6bn the government wanted to raise. Although a number of German bond auctions failed last year, it was almost unheard of before the credit crisis.

Meyrick Chapman, a fixed-income strategist at UBS, said: “When a German bond auction fails, then that does suggest there is trouble ahead for governments wanting to raise money in the debt markets.

“There was certainly a supply/demand imbalance because of the large amount of issuance in the last quarter of 2008 and the large amount due in the coming months. Before the financial crisis, German bond auctions just did not fail.”

Although government bond yields are trading at historically low levels, because of fears of deflation and investor demand for safe government paper in an uncertain climate, the failed German auction is a sign that appetite for these bonds is starting to diminish.

A number of countries, including the UK, Italy, Spain, Austria, Belgium and the Netherlands, have either struggled to sell bonds or been forced to cancel debt offerings because of a lack of demand.

The UK successfully sold £2bn in gilts due to mature in 2038 on Wednesday.

However, Robert Stheeman, chief executive of the UK Debt Management Office, warned last month that the ÜK government could also struggle to sell bonds because of the vast amount of bond issuance in the pipeline.

The UK is planning to raise £146bn in bonds this financial year – three times more than last year.

From:

FT.com / Markets - Investors shun German bond auction

Oh dear. Inevitable really, I would lend Governments the buttons on my shirt at this time...

Originally Posted by bkkandrew

“There was certainly a supply/demand imbalance because of the large amount of issuance in the last quarter of 2008 and the large amount due in the coming months. Before the financial crisis, German bond auctions just did not fail.”

you forgot to highlight that part, the likely scenario. Of course, you probably don't understand what that means.

Originally Posted by Butterfly

Originally Posted by bkkandrew

“There was certainly a supply/demand imbalance because of the large amount of issuance in the last quarter of 2008 and the large amount due in the coming months. Before the financial crisis, German bond auctions just did not fail.”

you forgot to highlight that part, the likely scenario. Of course, you probably don't understand what that means.

It means exactly what my point was, so there was no need to highlight it. THERE IS TOO MUCH DEBT TO FUND.

Is that bold/clear enough for you now?

Originally Posted by bkkandrew

Originally Posted by Butterfly

Originally Posted by bkkandrew

“There was certainly a supply/demand imbalance because of the large amount of issuance in the last quarter of 2008 and the large amount due in the coming months. Before the financial crisis, German bond auctions just did not fail.”

you forgot to highlight that part, the likely scenario. Of course, you probably don't understand what that means.

It means exactly what my point was, so there was no need to highlight it. THERE IS TOO MUCH DEBT TO FUND.

Is that bold/clear enough for you now?

Correct, BKK Andrew,

Too much debt, and too much in obligations (entitlements) that are promised to be paid out as IOUs.

I put an article in the Social Security thread about Obama's statement today.

Medicare and SS, national debt, and the interest payments.

I do not see a way out of this for the USA.

It's going to be painful, to say the least.

Originally Posted by bkkandrew

It means exactly what my point was, so there was no need to highlight it. THERE IS TOO MUCH DEBT TO FUND.

that's exactly what I am saying, you completely missed the meaning of that section as you are demonstrating again above. The point was technical, as temporary imbalance in supply and demand for government securities. It doesn't mean at all there is too much debt to fund. These kinds of technical imbalance can happen many times, even there is no "crisis" in the background. You have no clue. As usual.

State unemployment claim systems overwhelmed

ALBANY, N.Y. – Electronic unemployment filing systems have crashed in at least three states in recent days amid an unprecedented crush of thousands of newly jobless Americans seeking benefits, and other states were adjusting their systems to avoid being next.

About 4.5 million Americans are collecting jobless benefits, a 26-year high, so the Web sites and phone systems now commonly used to file for benefits are being tested like never before.

Even those that are holding up under the strain are in many cases leaving filers on the line for hours, or kissing them off with an "all circuits are busy" message. Agencies have been scrambling to hire hundreds more workers to handle the calls.
Systems in New York, North Carolina and Ohio were shut down completely by technical glitches and heavy volume, and labor officials in several other states are reporting higher-than-normal use.

"Regardless of when you call, be prepared to wait and just hang on. Try not to get frustrated," said Howard Cosgrove, a spokesman for the Wisconsin Department of Workforce Development, which boosted its staff of telephone operators by 25 percent last month to cope with a phone system that has been overloaded for weeks. "We sympathize, we're on their side, we're doing our best to help them out."

The nation's unemployment rate in November zoomed to 6.7 percent, a 15-year high. Economists predict it will rise to 7 percent in December, with another 500,000 jobs probably cut last month. The government releases its monthly employment report on Friday.

Full story here:

State unemployment claim systems overwhelmed - Yahoo! News

That's one way to cut the unemployment numbers, don't build an IT system that can handle them!

Originally Posted by Butterfly

Originally Posted by bkkandrew

It means exactly what my point was, so there was no need to highlight it. THERE IS TOO MUCH DEBT TO FUND.

that's exactly what I am saying, you completely missed the meaning of that section as you are demonstrating again above. The point was technical, as temporary imbalance in supply and demand for government securities. It doesn't mean at all there is too much debt to fund. These kinds of technical imbalance can happen many times, even there is no "crisis" in the background. You have no clue. As usual.

Reading is not really your strong point, is it? You even quoted it in your post 1066:

Originally Posted by Butterfly

Originally Posted by bkkandrew

“There was certainly a supply/demand imbalance because of the large amount of issuance in the last quarter of 2008 and the large amount due in the coming months. Before the financial crisis, German bond auctions just did not fail.”

you forgot to highlight that part, the likely scenario. Of course, you probably don't understand what that means.

As you are keen on having things highlighted for you now, I will oblige:

and the large amount due in the coming months

So, not just the 'past quarter' as you pasted into your last post, but the coming months - and if you look at various Governments' own projections for 2009 and beyond it is for the forseeable future. The UK, for instance, projects more than doubling of National debt during the course of the next 5-years. It is unprecidented, unfundable and madness to even try.

^ again, you don't understand. Government securities are issued all the time, they retire some, and replace some. Actually government borrowing is deferred in accounting practice, it's not a cash economy where you raised billions overnight. Banks have been injected with cash by the Central bank, they need to keep ratios stable, the capital is invested, usually in government securities. This is ever more true these days as they are afraid of lending. Instead they run to buy Treasury securities, too much demand for them which has even the US short term notes turn into a negative yield.

Originally Posted by Butterfly

^ again, you don't understand. Government securities are issued all the time, they retire some, and replace some. Actually government borrowing is deferred in accounting practice, it's not a cash economy where you raised billions overnight. Banks have been injected with cash by the Central bank, they need to keep ratios stable, the capital is invested, usually in government securities. This is ever more true these days as they are afraid of lending. Instead they run to buy Treasury securities, too much demand for them which has even the US short term notes turn into a negative yield.

You are always about six-months behind the news, denying it every step of the way. T-Bill negative yeilds were yesterday's news, today's is the realisation that there is just too much debt to be funded, hence in the increase in spread risk, failed auctions and poor investor sentiment.

And as if to underline the point, some copy from Reuters:

By Jamie McGeever

LONDON, Jan 7 (Reuters) - Bond markets were given the first clues on Wednesday on how receptive investors will be to the expected glut of euro zone government borrowing this year, and the initial indications weren't encouraging.

Germany shifted only two thirds of the 6 billion of 10-year paper it put up for auction, an outcome that triggered a steep fall in Bund prices and corresponding jump in long-term yields.

Several euro zone countries including Germany again, France, Spain, Austria, The Netherlands and Ireland are all scheduled to sell bonds this week and next as governments raise funds to pay for their recession-fighting fiscal stimulus packages.

Germany's auction on Wednesday raises the prospect euro zone governments will have to pay investors higher rates of interest to take on their ballooning debt, which could result in bond issuance totalling as much as 870 billion euros this year.

"It's a bad omen ahead of the increasing supply that's coming this year," said Everett Brown, European bond strategist at IDEAglobal in London, referring to the Bund auction.

"It's a definite worry," he added.

Even the UK auction on Wednesday of 2 billion pounds of 30-year gilts, which drew much stronger demand and was covered 1.72 times, failed to lift the price of 30-year paper or prevent a selloff of most other UK gilts.

"Burgeoning supply everywhere ... is the main headwind for bonds this year, although it's counterbalanced by the negative economic outlook, easier monetary policy and the possibility central banks could buy bonds if yields rise too much as part of their quantitative easing strategy," Brown added.

Germany sold 4.058 billion euros of 10-year government bonds to investors, leaving the Bundesbank to take up 1.942 billion euros.

My bold (to help Butterfly's comprehension)...

And furthermore:

The sharp slowdown in the US economy will push the federal budget deficit to more than $1 trillion, the non-partisan Congressional Budget Office (CBO) says.

The deficit of $1.186 trillion for the fiscal year ending on 30 September would be the largest on record.

The projected deficit does not include the extra $800bn spending being planned by US President-elect Barack Obama.

But it highlights the deep economic difficulties facing Mr Obama when he is inaugurated on 20 January.

The CBO says that the slowing economy will lead to the US budget deficit more than doubling from last year's figure of $455bn.

From:

BBC NEWS | Business | US deficit 'to hit $1 trillion'

The mountain of debt to fund just gets bigger by the day. And bear in mind that we haven't solved any of the problems yet, this debt is just to get where we are now...

And, of course, add Obama's $800BN to the $1.186TR and you get a cool 2 TRILLION DOLLARS IN 1-YEAR!